The Core Personal Consumption Expenditure (PCE) Prices release measures the changes in the price of goods and services purchased by consumers for the purpose of consumption, excluding food and energy. Prices are weighted according to total expenditure per item. It measures price change from the perspective of the consumer. It is a key way to measure changes in purchasing trends and inflation. Economists watch the growth of Personal Spending in relation to income and saving to determine if consumers are living beyond their means, which would influence levels of borrowing and future consumption.
A higher than expected reading should be taken as positive/bullish for the USD, while a lower than expected reading should be taken as negative/bearish for the USD.
Apr 29, 2020
Why Traders Care
Personal Consumption is a comprehensive measure of GDP; consequently the figure is watched as an indicator for economic trends. Spending also has direct affect on inflationary pressures. A healthy Personal Spending figure means that consumers are buying goods and services, fueling the economy and spurring output growth. The report is particularly valued for forecasting inflationary pressures. Taken in excess these high levels of consumption and production may lead to an overall increase in prices. Indeed, the Fed uses a measure of inflation derived from the PCE as their primary gauge of inflation. On the other hand, persistently low Personal Spending may result in decreasing levels of output and an economic downturn. Because income is either spent or saved, Personal Spending (when reported as a percent of income rather than the headline percent change) has an inverse relationship to personal saving.
Personal Consumption Expenditure (PCE), Gross Domestic Product (GDP)